MARKET POWER IN THE PROPERTY/CASUALTY INSURANCE INDUSTRY |
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| Authors: | Arthur M B Hogan Robert C Witt |
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| Institution: | with the Office of Thrill Supervision Washington, D.C.;a Professor in the Department of Finance at the University of Texas at Austin. |
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| Abstract: | Abstract: Pro-consumer groups have charged that insurance firms are able to exercise market power to reduce coverage and/or increase rates. The ability of firms to earn economic rents (abnormal profits) is a factor in banks' interest in entering insurance markets. In classical economics such collusion is usually only possible with cartels. Recent work, examining the relationship between industry structure indicates that the power that can be exercised by cartels may be more limited than under the classical paradigms. We examine the ability of insurers to exercise market power in light of these modern theories. |
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